News Business
August 01, 2023

Curve Founders Loans are Facing Liquidation if the CRV Price Touches $0.3?

The global DeFi industry is once again the spotlight, and this time, it’s due to the challenges that Curve, an Australian protocol’s founders, are currently facing. The recent turmoil in the Curve universe originated from the founders’ substantial collateral positions in CRV tokens. They leveraged these positions to cash out into the tangible world through various lending protocols. However, these positions now teeter on the brink of liquidation, a scenario that could unfold if the CRV price plunges to a specific point.

Curve Founders Loans are Facing Liquidation if the CRV price touches $0.3?

Founder of OG DeFi protocol Curve, Mikhail Egorov, had built significant collateral positions using CRV tokens across various lending platforms. The total CRV pledged includes:

  • 305M CRV in AAVE as collateral for 70M USDT/USDC
  • 63.5M CRV in Abracadabra against 18.7M MIM
  • 46.6M CRV in Fraxlend against 12M FRAX (optimized amount)
  • 25M CRV in Inverse against 7.7M Dola

When the market was in an uptrend and the CRV token hovered around $7, the collateral was valued at a hefty $3B. Mikhail faced no criticism during this period, given the ongoing Curve Wars for CRV issuance.

The Curve Drama Unfolds

However, recent events have upset the curve. Lawsuits filed by several venture capitalists accusing Mikhail of unfair protocol launch and monopolizing initial issuance, criticism over his $40M mansion purchase in Australia, and a recent protocol hack due to a vulnerability in Vyper versions have contributed to a steep fall in the CRV token price.

Mikhail’s wallet value dipped from $250M to $205M based on market evaluation, and one of the protocols decided to forcefully increase the interest rate on Mikhail’s position to compel him to repay the debt.

The Intensifying Borrowing Rate Dilemma

FraxLend protocol employs a multiplier to increase the borrowing rate when the pool’s utilization reaches 100%. Consequently, the borrowing rate for FRAX against CRV soared to 64% annually in the morning and could obliterate Mikhail’s position by Wednesday if it continued to rise at the same rate, potentially reaching an annual 10000%.

Nevertheless, it appears that Mikhail began employing over-the-counter (OTC) transactions, exchanging 1M USDT followed by 2.5M CRV, which was a 31% discount to the current price of $0.57. In the past hours, the buyer received a repayment of 5M USDT against a transfer of 12.5M CRV.

This caused the pool utilization in FraxLend to drop to 80%, giving Mikhail some respite since the borrowing rate against FRAX would become market-oriented.

The Intensifying Borrowing Rate Dilemma

The Ambiguity of the Protocol’s Future and the Domino Effect

With the Total Value Locked (TVL) plunging by 50%, the future of the protocol is ambiguous. It is uncertain whether Curve can regain the market’s trust and whether this won breather might turn out to be a ticking time bomb. It could lead to the liquidation of the largest part of the collateral deal – 305M CRV in the AAVE protocol against 70M withdrawn stablecoins.

If AAVE absorbs bad debt, it might have to resort to selling its native token to repay stablecoin depositors, potentially triggering a massive sell-off of its native token.

Founder’s On-chain Liquidation Price

With the on-chain liquidation price for the founder approximated between $0.3-$0.35, the bearish trend seems likely to persist until he manages to repay his debt.

The downturn of Bitcoin a few hours ago has exacerbated the situation. After all, if investors are wary of holding onto Bitcoin, how likely are they to hold onto CRV, an asset currently fraught with risks?

However, if liquidation impacts the Curve founder’s position on AAVE, investors might want to consider taking on a small risk to buy CRV. It’s essential to distinguish that CRV is not Luna ‚Äď CRV cannot expand its supply out of thin air in the same way Luna can. This simplicity makes the sell-off much like an over-leveraged position from a whale, potentially providing an opportunity for investors to bolster their spot bag. At the same time, Mpost.io does not make any financial recommendations.

Ethical Dilemmas and Luxury Problems

Two primary questions arise from this scenario: Firstly, when will Mikhail receive market assistance for buying CRV tokens from Andrew Kang and Justin Sun? Secondly, was it ethical to use the CRV token as collateral against a $100M cash-out from the DeFi ecosystem?

While the answers to these questions are still unknown, one thing is certain: the financial decisions taken by the Curve founders in the past have significant repercussions today. It is a timely reminder for all investors of the unpredictable nature of DeFi investments and the importance of maintaining a balanced and risk-managed portfolio.

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Disclaimer

In line with the Trust Project guidelines, please note that the information provided on this page is not intended to be and should not be interpreted as legal, tax, investment, financial, or any other form of advice. It is important to only invest what you can afford to lose and to seek independent financial advice if you have any doubts. For further information, we suggest referring to the terms and conditions as well as the help and support pages provided by the issuer or advertiser. MetaversePost is committed to accurate, unbiased reporting, but market conditions are subject to change without notice.

About The Author

Nik is an accomplished analyst and writer at Metaverse Post, specializing in delivering cutting-edge insights into the fast-paced world of technology, with a particular emphasis on AI/ML, XR, VR, on-chain analytics, and blockchain development. His articles engage and inform a diverse audience, helping them stay ahead of the technological curve. Possessing a Master's degree in Economics and Management, Nik has a solid grasp of the nuances of the business world and its intersection with emergent technologies.

More articles
Nik Asti
Nik Asti

Nik is an accomplished analyst and writer at Metaverse Post, specializing in delivering cutting-edge insights into the fast-paced world of technology, with a particular emphasis on AI/ML, XR, VR, on-chain analytics, and blockchain development. His articles engage and inform a diverse audience, helping them stay ahead of the technological curve. Possessing a Master's degree in Economics and Management, Nik has a solid grasp of the nuances of the business world and its intersection with emergent technologies.

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